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Innovation or Imitation? The effect of spillovers and competitive pressure on firms' R&D strategy choice

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  • Slivko, Olga
  • Theilen, Bernd

Abstract

This article provides a theoretical and empirical analysis of a firm's optimal R&D strategy choice. In this paper a firm's R&D strategy is assumed to be endogenous and allowed to depend on both internal firms. characteristics and external factors. Firms choose between two strategies, either they engage in R&D or abstain from own R&D and imitate the outcomes of innovators. In the theoretical model this yields three types of equilibria in which either all firms innovate, some firms innovate and others imitate, or no firm innovates. Firms'equilibrium strategies crucially depend on external factors. We find that the efficiency of intellectual property rights protection positively affects firms'incentives to engage in R&D, while competitive pressure has a negative effect. In addition, smaller firms are found to be more likely to become imitators when the product is homogeneous and the level of spillovers is high. These results are supported by empirical evidence for German .rms from manufacturing and services sectors. Regarding social welfare our results indicate that strengthening intellectual property protection can have an ambiguous effect. In markets characterized by a high rate of innovation a reduction of intellectual property rights protection can discourage innovative performance substantially. However, a reduction of patent protection can also increase social welfare because it may induce imitation. This indicates that policy issues such as the optimal length and breadth of patent protection cannot be resolved without taking into account specific market and firm characteristics. Journal of Economic Literature Classification Numbers: C35, D43, L13, L22, O31. Keywords: Innovation; imitation; spillovers; product differentiation; market competition; intellectual property rights protection.

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  • Slivko, Olga & Theilen, Bernd, 2011. "Innovation or Imitation? The effect of spillovers and competitive pressure on firms' R&D strategy choice," Working Papers 2072/179618, Universitat Rovira i Virgili, Department of Economics.
  • Handle: RePEc:urv:wpaper:2072/179618
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    Cited by:

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    2. Francesco Di Comite & D'Artis Kancs, 2015. "Macro-Economic Models for R&D and Innovation Policies - A Comparison of QUEST, RHOMOLO, GEM-E3 and NEMESIS," JRC Working Papers JRC94323, Joint Research Centre (Seville site).
    3. Hailiang Zou & Xuemei Xie & Xiaohua Meng & Mengyu Yang, 2019. "The diffusion of corporate social responsibility through social network ties: From the perspective of strategic imitation," Corporate Social Responsibility and Environmental Management, John Wiley & Sons, vol. 26(1), pages 186-198, January.
    4. Kyung Hwan Baik & Sang-Kee Kim, 2020. "Observable versus unobservable R&D investments in duopolies," Journal of Economics, Springer, vol. 130(1), pages 37-66, June.
    5. Lixia Liu & Yuanshi Huang & Xueli Zhan, 2019. "The Evolution of Collective Strategies in SMEs’ Innovation: A Tripartite Game Analysis and Application," Complexity, Hindawi, vol. 2019, pages 1-15, October.
    6. Najda-Janoszka, Marta, 2013. "Towards Balancing Innovation and Imitation Practices in the Value Creation Process," MPRA Paper 58609, University Library of Munich, Germany.
    7. Lenka Pelegrinova & Martin Lacny, 2016. "Protection of Intellectual Property and its Economic Aspects," Journal of Economic Development, Environment and People, Alliance of Central-Eastern European Universities, vol. 5(3), pages 5-20, September.

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    More about this item

    Keywords

    Empreses -- Innovacions tecnològiques; Diferenciació de productes; Propietat intel·lectual; 33 - Economia; 65 - Gestió i organització. Administració i direcció d'empreses. Publicitat. Relacions públiques. Mitjans de comunicació de masses;
    All these keywords.

    JEL classification:

    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • O34 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Intellectual Property and Intellectual Capital
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • C62 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Existence and Stability Conditions of Equilibrium
    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games

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